Resource consumption is distributed across the activities as follows:**Distribution of Resource Consumption Across Activities**| | Cleaning Carpets | Travel to Jobs | Job Support | Other | Total ||--------------------------------|------------------|----------------|-------------|-------|--------|| Wages | 73% | 12% | 0% | 15% | 100% || Cleaning supplies | 100% | 0% | 0% | 0% | 100% || Cleaning equipment depreciation| 68% | 0% | 0% | 32% | 100% || Vehicle expenses | 0% | 84% | 0% | 16% | 100% || Office expenses | 0% | 0% | 64% | 36% | 100% || President’s compensation | 0% | 0% | 34% | 66% | 100% |Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.**Required:**1. Prepare the first-stage allocation of costs to the activity cost pools.2. Compute the activity rates for the activity cost pools.3. The company recently completed a 200 square foot carpet-cleaning job at the Flying N Ranch—a 52-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system.4. The revenue from the Flying N Ranch was $47.20 (200 square feet @ $23.60 per hundred square feet). Calculate the customer margin earned on this job. **Gallatin Carpet Cleaning: Analyzing Costs with Activity-Based Costing**Gallatin Carpet Cleaning is a small, family-owned business based in Bozeman, Montana. Traditionally, the company has charged a flat fee of $23.60 per hundred square feet of carpet cleaned. However, with some jobs requiring significant travel to remote locations, there is uncertainty about profitability.To address this, the owner's daughter proposed using activity-based costing (ABC), categorizing operations into four activity cost pools:1. **Cleaning Carpets** - **Activity Measure:** Square feet cleaned (in hundreds) - **Activity for the Year:** 14,500 hundred square feet2. **Travel to Jobs** - **Activity Measure:** Miles driven - **Activity for the Year:** 308,000 miles3. **Job Support** - **Activity Measure:** Number of jobs - **Activity for the Year:** 1,900 jobs4. **Other Costs** - **Activity Measure:** None - **Activity for the Year:** Not applicableThe firm's yearly operational cost totals $356,000, broken down as follows:- **Wages:** $141,000- **Cleaning Supplies:** $27,000- **Cleaning Equipment Depreciation:** $9,000- **Vehicle Expenses:** $34,000- **Office Expenses:** $67,000- **President's Compensation:** $78,000- **Total Cost:** $356,000This analysis aims to refine cost allocation to better assess job profitability.

1. First stage allocation of cost to activity cost pools Particulars Cleaning Carpets Travel to Jobs Job Support Others Total Cost % Amount % Amount % Amount % Amount Wages 73% $1,02,930 12% $16,920 0% $0 15% $21,150 $1,41,000 Cleaning Supplies 100% $27,000 0% $0 0% $0 0% $0 $27,000 Cleaning Equipment depreciation 68% $6,120 0% $0 0% $0 32% $2,880 $9,000 Vehicle Expenses 0% $0 84% $28,560 0% $0 16% $5,440 $34,000 Office Expense 0% $0 0% $0 64% $42,880 36% $24,120 $67,000 President's Compensation 0% $0 0% $0 34% $26,520 66% $51,480 $78,000 Total $1,36,050 $45,480 $69,400 $1,05,070 $3,56,000 2. Determination of activity rate for each activity Activity Estimated Overhead Cost Activity Base Usage of Activity Base Activity Rate Cleaning Carpets $1,36,050.00 Square feet cleaned 14500 $9.38 Travel to Jobs $45,480.00 Miles driven 308000 $0.15 Job Support $69,400.00 Nos of jobs 1900 $36.53 3. Computation of Job Cost Particulars Amount Cleaning Carpet (2*$9.38) $18.76 Travel to Jobs (52*$0.15) $7.80 Job Support $36.53 Total Cost $63.09 4. Customer Margin - Activity based costing Particulars Amount Revenue $47.20 Costs: Cleaning Carpet $18.76 Travel to Jobs $7.80 Job Support $36.53 Total Cost $63.09 Customer Margin -$15.89

Business

Accounting

Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Cleaning Carpets Travel to Jobs Job Support other 15% Total 73% 12% e% 100% Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation 100% 68% e% e% ex e% 0% 84% e% e% 100% e% e% 32% 16% 100% 100% 0% 64% 36% 100% e% 34% 66% 100% Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolv

Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Cleaning Carpets Travel to Jobs Job Support other 15% Total 73% 12% e% 100% Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation 100% 68% e% e% ex e% 0% 84% e% e% 100% e% e% 32% 16% 100% 100% 0% 64% 36% 100% e% 34% 66% 100% Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolv

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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